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US dollar stabilises after selloff; focus on North Korea, Hurricane Irma

Mon, Sep 11, 2017 - 10:09 AM

[TOKYO] The US dollar caught its breath in early Asian trading on Monday, pulling away from last week's lows against its major rivals after the weekend passed without any missile launches by North Korea.

Instead North Korea observed the 69th anniversary of its founding on Saturday with a celebration honouring the scientists behind the massive nuclear test it conducted last week.

The US dollar added 0.5 per cent against its perceived safe-haven Japanese counterpart to 108.38 yen, moving away from a 10-month nadir of 107.32 yen touched on Friday.

The yen tends to benefit during times of economic and political uncertainty due to Japan's net creditor nation status.

"The general tone in the market had been the continuation of the dollar's weakness, but if you look at all the factors, it's not necessarily negative overall for the dollar," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities, citing the relative strength of the US economy and investors' hope that a US tax reform plan will eventually be passed.

Still, he said, concerns about the simmering tensions on the Korea peninsula remain a source of pressure on the US dollar, as well as the possible hit to US growth from Hurricane Irma as it ravaged Florida.

"But North Korea and Hurricane Irma are temporary factors, and neither is likely to have a long-term impact," he said.

"I would say dollar yen below 108 yen is a good level to buy, and I still expect the US to come up with some kind of tax reform to shore up US growth next year."

US President Donald Trump said on Saturday that he will ask the Republican-controlled Congress to further speed up its efforts to overhaul the US tax code, citing the potential impact of Hurricane Irma as a reason to hasten reforms.

High levels of US dollar short positions might also be setting the stage for a correction, Mr Yamamoto said.

Speculators' net short bets on the dollar grew to their highest since January 2013 in the latest week through Aug 29, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The value of the US dollar's net short position, derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars, was US$10.89 billion in the week, up from the previous week's net short position of US$10.28 billion.

Moreover, a wider measure of US dollar positioning that includes net contracts on the New Zealand dollar, Mexican peso, Brazilian real and Russian ruble showed a US dollar net short position of US$15.528 billion, up from US$14.66 billion a week earlier.

The euro was down 0.2 per cent at US$1.2015, after it rose as high as US$1.2092 on Friday, its loftiest since January 2015.

Despite the strength of the common currency and prospects for further gains on expectations of a turn in monetary policy, the European Central Bank has signalled it is gearing up to taper its massive stimulus programme.

Reuters reported on Friday that ECB policymakers agreed at their meeting on Thursday that their next step would be to begin reducing its bond buying, three sources with direct knowledge of the discussion said.

The euro has gained more than 14 per cent against the US dollar so far in 2017, on track for its best annual performance in 14 years.

Meanwhile, Bitcoin tumbled 2 per cent to US$4,217.76 on the BitStamp platform, after reports that China was about to shut down local crypto-currency exchanges.